If you have made the leap and left your job to become self-employed, then welcome to the club! And, congrats! That is no small feat, and I would know.

You really want this to work out so that you don’t ever have to go back to working for someone else, and I want that for you too!  If you want to give yourself and your small or solo business the best chance at success, then get financially fit – both professionally and personally.

In this video, I explain why this is so critical.

Transcript:

Are you your own business’s biggest asset or liability?

You’re definitely its biggest asset, and this video is all about minimizing yourself as your business’s biggest liability.

Let me rewind for just a minute to remind you what financial fitness is and what the key to it is for you if you’re self-employed or are a soloprenuer.

Financial fitness is about being organized and on top of your money so that you’re directing it, rather than being at its whim. It’s about having the foresight to plan and the strength to see your spending through, according to those goals.

As a business owner, you’re going to want to know the answer to the five financially fit questions, every month. If you answer yes to them, then your business is in good shape, and is likely to remain so.

The first question is, do I know how much money came in? In other words, how much revenue did you actually receive or how much money was actually received into your business checking account?

The second question is, do I know how much money went out? How much money did you spend on all your business related expenses?

Three, did more money come in than go out? Or at least did you break even? This is fine when some of the spending was invested into the company. This one’s a bit of a doozie because it can be difficult to distinguish between an expense and an investment, but that’s a subject for another time.

Question 4 is, do you know where all your money went? This question is about knowing how much was spent by category. These categories are pretty much the same categories as business write-offs on your tax return.

Question 5 is, are you satisfied with where your money was spent? Did you spend according to plan, or budget?

If you can say yes to these 5 questions, then you’re on rock solid footing in your business. This doesn’t cover everything you should know, but it’s a great place to start.

Now here’s the key to the whole thing for folks who are self-employed or consider themselves solopreneurs: you have to be able to answer the same 5 questions about your personal finances every month, without fail.

The mistake you make when you are your business is that when you think of money, you’re only thinking of your business, and the income side of your business at that. Most of us are pretty much only focused on the money that our business is making; we’re paying very little attention to how much we’re spending or where it’s all going. Most people just go by their checking account balance. If there’s money in there, cool, they feel they’re doing well, and if not, they vow to make more money, and that’s about all the analysis that gets done. It’s similar to the way many people manage their personal finances too. They check their balance and if there’s money in there good, if not, they worry about making more.

Why is it so important to pay attention to your personal AND business finances? Being financially unfit in your personal finances makes you a massive liability for your business. Your business can make a lot of money, but if your personal finances are a mess, it will drag down and potentially destroy your business. If you can’t control your personal spending, you will take more and more from your business. I mean, you figure that you’ve worked for it and it’s yours so why not? But then that puts more pressure on the business to perform and not all of us perform well under pressure. It can make you desperate for more sales and desperation looks cute on no one. It can stifle your creativity if you’re stressed about having to make more, more, and more. You might ruin your reputation as you take on more customers than you can handle and then you end up providing a bad experience or poor customer service because you’re so overwhelmed. You might spend money that you haven’t actually received yet, but that you’re expecting. It’s a dangerous way to live for you personally and for your business

So my advice is this: take care of your personal finances so that you don’t take your business down trying to keep up with your spending. When you start a business, be aware that you will need to take care of your business finances as well as your personal finances, separately. They are two different things. They are you and they are your business. They’re not one in the same. Do not assume that your personal finances will be taken care of just as long as your business is doing well. Just because you have a lot of money coming in doesn’t mean that your personal finances will be in good shape. Financial fitness is not a function of income, it’s a set of habits that keeps you in control of your spending.

It’s not your businesses’ responsibility to take care of your personal finances, it’s yours. So yes, I am suggesting that you have to be financially fit both personally and professionally. If your personal finances are fit, then you have removed much of the detriment that we can be on our own businesses. The good news is that the system for being financially fit personally and in your business are practically identical, just the categories are different. I recommend that you master your personal financial fitness before starting up a business but if you’re already up and running in your business, it’s still imperative to tackle your personal financial fitness as well as your business financial fitness.

I’m so sure that both personal and business financial fitness go hand in hand that I require that my small and solo business owner clients who want financial coaching for their business finances, also agree to include their personal financial fitness in our work together. I will not coach someone in their business who does not also work on their personal finances. I just don’t see the point of helping someone make more money, simply for them to end up losing it all by spending on meaningless things that don’t improve the quality of their life or help them achieve their goals.  I want to help strengthen the asset while minimizing the liabilities, even if that liability is your own bad spending habits.

Hope this makes you think differently about how you’re doing money management and I’ll catch you soon.